There are many types of investors. Stock investors, real estate investors, crypto investors, and the list goes on. But in this article we will discuss a particular type of stock investor: the kind who focuses on dividends.

Lets say for example, you decide to purchase some shares of the Nike stock. When Michael Jordan releases a new pair of shoes, the sales from the shoe takes off. Nike makes profit from the sale. They turn around and re-invest the profit into the business. Then they pay a portion of the profit as a dividend to shareholders (you).

The more shares of a stock you buy, the more dividends you will earn. Not all stocks pay dividends, but some pay dividends yearly, others quarterly, and others monthly.

A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits.

Wikipedia

Reaching financial independence

Financial independence is when your assets (investments) are large enough that they yield returns (dividends) to cover all of your expenses. Many investors view the point of earning $1000 in dividends each month as the first step towards financial independence.

Lets do some math, to figure out what it would take to get there with a relatively small stock. So lets take for example, Office Depot (ODP).

As of writing this blog, ODP costed about $3 per share. It returns a dividend payout of about $0.10 cents. So $1000 ÷ $0.10 = 10,000. And $3 x 10,000 = $30,000. So you will need 10,000 shares (approx $30,000) of ODP in order to see a dividend return of $1000 quarterly.*

You might be wondering why you should even care. What’s the advantage here? Here are a few things to consider.

1) Cash flow

If you gain enough cash flow from dividends you could reach financial independence. What this means is no more trading hours for a paycheck. You’ll have your money working for you, to generate more money.

On dividend.com there is a long list of dividend stocks that will pay you every month. You can use these stocks to start to generate cash flow. If you invest in enough of these kinds of stocks, you can earn dividends almost every day.

2) Lower taxes

There is a Much lower tax liability. Your federal income taxes for those dividends is MUCH lower than your taxes from earned (job) income.

Dividends are taxed at 20%, 15%, or 0% rate, depending on your tax bracket. This means that the amount of taxes you pay on dividends will depend upon your earned income, and this of course may vary.

If you never purchased stocks or earned dividends before, don’t worry. It’s better to start at the bottom than not at all. And its also getting much easier to do so with apps like Robinhood and M1 Finance.

* (ODP pays quarterly, but many dividends pay monthly)

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Disclaimer: This article was written for educational and entertainment purposes only. This is NOT financial advice. Always do your own research and please consult with a licensed attorney before making any serious investment. We are not responsible for any investment decisions that you choose to make.